Chapter 10: Cash and Financial Investments

Question 1

Moving cash from one bank account to another. The transfer, generally performed
electronically, may be between two accounts in the same bank (e.g., general account to payroll account)
or from one bank the company maintains an account with to another.

Answer 1

Bank transfer

Question 2

A notification sent by a stockbrokerage firm to a customer reporting the terms
of a purchase or sale of securities.

Answer 2

Brokers’ advice

Question 3

A check the amount of which has been subtracted from the depositor’s account
and has been marked as “canceled” by a financial institution. A canceled check has been endorsed by the
payee and paid by the drawee financial institution. A canceled check is in contrast to a voided check, a
check that has not been processed and will not be

Answer 3

Canceled checks

Question 4

This act allows financial
institutions to create and process electronic “substitute checks” in place of customer written hard-copy
checks. The purpose of this act is to decrease the time for check clearing.

Answer 4

Check Clearing for the 21st Century Act (“Check 21 Act”)

Question 5

As included in the PCAOB auditing standards, a matter arising
from the audit of the financial statements that was communicated or required to be communicated to
the audit committee and that (1) relates to accounts or disclosures that are material to the financial
statements and (2) involved especially challenging, subject, or complex auditor judgment.

Answer 5

Critical audit matter

Question 6

A bank statement covering a specified number of business days (usually
7 to 10) after the client’s balance sheet date. Auditors use this statement to determine that checks issued
on or before the balance sheet date and paid during the cutoff period were listed as outstanding on the
year-end bank reconciliation. Another use is to determine that reconciling items shown on the year-end
bank reconciliation have cleared the bank within a reasonable amount of time.

Answer 6

Cutoff bank statement

Question 7

Analyses applied to raw data with the purpose of drawing conclusions about
relationships. Data analytics is being used by management to get insights into how to improve the
effectiveness and efficiency of operations. It is also used as a part of the management review to monitor
the performance of other internal controls. Auditors are increasingly using data analytics to improve the
effectiveness of certain audit procedures.

Answer 7

Data analytics

Question 8

Financial instruments that “derive” their value from other financial instruments,
underlying assets, or indexes. Examples are options, forward contracts, and futures contracts.

Answer 8

Derivatives

Question 9

A reference book published monthly by investment advisory services
reporting detailed information concerning all listed and many unlisted securities; includes dividend
dates and amounts, current prices of securities, and other condensed financial data.

Answer 9

Dividend record book

Question 10

A computer network between companies that allows
the interchange of data from one company’s computer to the other’s (e.g., allows purchases and sales
between two firms to be processed electronically).

Answer 10

Electronic data interchange (EDI)

Question 11

A computer system that transmits and processes
funds-related cash disbursement and receipt transactions. Increasingly, companies are electronically
transferring funds between bank accounts rather than issuing checks. See also electronic data
interchange.

Answer 11

Electronic funds transfer (EFT) system

Question 12

Manipulations causing an amount of cash to be included simultaneously in the balance
of two or more bank accounts. Kiting schemes are based on the float period—the time necessary for a
check deposited in one bank to clear the bank on which it was drawn.

Answer 12

Kiting

Question 13

A post office box controlled by a company’s bank at which cash remittances from
customers are received. The bank picks up the remittances, immediately credits the cash to the company’s
bank account, and forwards the remittance advices to the company.

Answer 13

Lockbox

Question 14

Reviews conducted by management of estimates and other
kinds of financial information for reasonableness. They often involve the use of significant judgment,
knowledge, and experience in comparing recorded amounts with expectations of the reviewers. They
often are considered monitoring controls but may relate to any of the other COSO components that
have the common characteristic of management review of information to identify misstatements or
breakdowns in other controls.

Answer 14

Management review controls

Question 15

An audit procedure that reconciles the bank’s record of cash activity with the
client’s accounting records for a test period. The working paper used for the proof of cash is a four column bank reconciliation.

Answer 15

Proof of cash

Question 16

A confirmation form, agreed to by the AICPA, the American
Bankers Association, and the Bank Administration Institute, that is designed to provide corroborating
evidence about the client’s account balances and outstanding loans.

Answer 16

Standard confirmation form

Question 17

A check that is not negotiable (null and void). A voided check usually results
from an error in preparing the check. In contrast a canceled check is one that has been paid by the bank.

Answer 17

Voided check

Question 18

A document authorizing a cash disbursement. A voucher usually provides space
for the initials of employees performing various approval functions. The term voucher also may be
applied to the group of supporting documents used as a basis for recording liabilities or for making cash
disbursements.

Answer 18

Voucher

Question 19

A special journal used to record the liabilities for payment originating in a
voucher system. The debit entries are the cost distribution of the transaction, and the credits are Vouchers
Payable. Every transaction recorded in a voucher register corresponds to a voucher authorizing future
payment of cash.

Answer 19

Voucher register

Question 20

Action taken by the client shortly before the balance sheet date to improve
the financial picture presented in the financial statements.

Answer 20

Window dressing